Loser of Bid to Overhaul Hospital Logs Files a Claim

One of the country’s largest providers of electronic medical records has lodged a complaint against New York City’s public hospital system for awarding a $303 million contract to a rival.

The company, Allscripts, lost its bid last month to replace the public hospital system’s fragmented and antiquated medical-records system with an integrated system that would link 11 public hospitals, 70 clinics, thousands of doctors and more than one million patients and allow them to communicate with one another.

Allscripts claimed that when all ancillary costs were included, its system would be more than $700 million cheaper to build than the $1.4 billion total cost over 15 years that the hospitals corporation has estimated it will take to build the Epic system.

“If you’re going to spend that much money, just tell me why,” Glen Tullman, the chief executive of Allscripts, based in Chicago, said on Tuesday. “This is a trade-off. Do I hire more teachers, more doctors, more nurses, or do I give the money to a software company?”

Allscripts has filed a complaint with a procurement-review board within the Health and Hospitals Corporation, which runs the city’s public hospitals. The contract will not be in force until the complaint is formally resolved.

But Alan Aviles, president of the corporation, said on Tuesday that Allscripts’s cost analysis was false and unrealistic. He said that the corporation’s choice, made after considering nine vendors over four years, had been validated in the last few months as Allscripts experienced management and financial problems.

Allscripts’s stock price fell sharply in April after its chairman was fired and three directors resigned in protest. According to a Bloomberg News report this week, Allscripts is considering a leveraged buyout and has received first-round bids from private-equity firms, including BlackStone Group, Carlyle Group and Silver Lake Management.

“Allscripts and its C.E.O. absolutely know that that $700 million number they tossed out is fallacious,” Mr. Aviles said. The company’s formal complaint, he said, was a way to force the corporation to delay the contract and hold out hope that Allscripts could still get it, “as they scramble to get private-equity firms to take them over.”

Mr. Tullman declined to confirm or deny a Bloomberg News report that Allscripts was being taken private, saying, “As a public company, we never comment on rumors.”

Hospital corporation documents said that the Epic contract would cost $303 million and that the Allscripts proposal would cost $299 million, which the documents characterized as a minimal difference. The dispute centers not on the core cost but on the so-called total cost of ownership over 15 years, including third-party software and hardware and support services.

For instance, Mr. Aviles said that Allscripts was estimating that an application-support team needed to carry out the contract would cost nothing, while the hospitals corporation has estimated that it will have to use its own newly hired and existing staff, at a cost of $357 million.

“How can you implement a complex electronic-medical-records system and have zero support on our side?” Mr. Aviles said. “This is more than surprising. This calls into question the leadership there.”

Allscripts refused to publicly disclose what it expected its proposal would cost in support services, but Mr. Tullman said that Allscripts was less expensive in part because it used standard Microsoft software. “Their language is more expensive to maintain,” he said, referring to Epic.

Epic declined to comment on the specifics of the Allscripts complaint, but issued a statement Tuesday saying that the company was “happy to be chosen after an open and rigorous selection process spanning several years and many detailed reviews.”

The hospitals corporation said it would cost almost as much to upgrade its existing electronic-records system, which goes back 20 years, as it would to build a new system. The net difference, according to corporation documents, was just $157 million, which would be largely paid for by federal funds, estimated at $125 million.

A version of this article appears in print on October 10, 2012, on page A20 of the New York edition with the headline: Loser of Bid To Overhaul Hospital Logs Files a Claim. Order Reprints|Today's Paper|Subscribe